TY  - JOUR
AU  - Karabay,Bilgehan
AU  - McLaren,John
TI  - Trade, Offshoring, and the Invisible Handshake
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15048
PY  - 2009
Y2  - June 2009
UR  - http://www.nber.org/papers/w15048
L1  - http://www.nber.org/papers/w15048.pdf
N1  - Author contact info:
Bilgehan Karabay
Department of Economics
University of Auckland
Owen G. Glenn Building
12 Grafton Road
Auckland 1010
New Zealand
Tel: +64-9-9237193 
Fax: +64-9-3737427 
E-Mail: bilgehan.karabay@gmail.com

John McLaren
Department of Economics
University of Virginia
P.O. Box 400182
Charlottesville, VA  22904-4182
Tel: 434/924-3994
Fax: 434/982-2904
E-Mail: jmclaren@virginia.edu
AB  - We study the effect of globalization on the volatility of wages and worker welfare in a model in which risk is allocated through long-run employment relationships (the 'invisible handshake'). Globalization can take two forms: International integration of commodity markets (i.e., free trade) and international integration of factor markets (i.e., offshoring). In a two-country, two-good, two-factor model we show that free trade and offshoring have opposite effects on rich-country workers. Free trade hurts rich-country workers, while reducing the volatility of their wages; by contrast, offshoring benefits them, while raising the volatility of their wages. We thus formalize, but also sharply circumscribe, a common critique of globalization.
ER  -